CEO of Uber Travis Kalanick in one of the car Uber service uses to drive customers in San Francisco, Calif. on May 1, 2012.

CEO of Uber Travis Kalanick in one of the car Uber service uses to drive customers in San Francisco, Calif. on May 1, 2012.

Photo: Siana Hristova, The Chronicle

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Uber CEO of Uber Travis Kalanickuses shows the application they use to give exact location and connect a customer and a driver in San Francisco, Calif. on May 1, 2012.

Uber CEO of Uber Travis Kalanickuses shows the application they use to give exact location and connect a customer and a driver in San Francisco, Calif. on May 1, 2012.

Photo: Siana Hristova, The Chronicle

Image 3 of 3

Uber slashes prices temporarily in bid for market share

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Smarting from a stretch of bad publicity, San Francisco's Uber made a splash this week by temporarily slashing the price of its basic ride-sharing service in 16 cities, a bid to seize market share in a battle with other tech competitors and the taxicab industry.

Those competitors may respond with price cuts of their own. But cabbies cannot - their rates are locked in under city code.

In San Francisco, where the company was the first to connect riders and drivers through an app, Uber dropped its base rate to $3, plus $1.50 per mile - well below the city's taxi rates. For a 10-mile trip, that represents a 33 percent cut by Uber.

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The company, though, is not changing its plan to charge more - sometimes much more - during times of high demand.

And it told drivers in an e-mail that the lower prices could be gone within a few weeks. Uber described a "temporary test to try to drive more rides during a traditionally slow period." The company said it was "sacrificing almost all of its revenue" in San Francisco, in hopes of capitalizing on higher market share in the future.

Uber, which has historically profited by taking a 15 to 20 percent commission from its drivers, said it would take just 5 percent during the experiment, to preserve drivers' income.

Competitors predicted they would still be able to offer a better deal, while some industry observers said if Uber's changes are simply a short-term ploy to generate positive publicity, the strategy could backfire.

High stakes

In any event, the price cut underscored the swift changes and high stakes in ride-sharing ventures like UberX, which use amateur drivers. Uber also has a higher-end service using professional drivers in fancier cars.

But she noted the fickle nature of ride-sharing: Pricing structures can change at any time.

Uber, which pairs freelance drivers with younger, tech-savvy riders who want to bypass traditional cabs and car services, introduced its services in San Francisco four years ago and has expanded to more than 50 cities worldwide. But it was soon joined by ride-sharing foes such as Lyft and Sidecar, which often offered better prices.

Competitors noted Friday that Uber's new rates leave in place peak-hour surcharges that are based on a secret algorithm. On New Year's Eve, some customers complained they were being gouged after they were charged several times the normal rate. Uber officials said the strategy ensures that supply aligns with demand.

Sunil Paul, chief executive officer of Sidecar, said Uber's new rates would not make the company cheaper than competitors.

"Uber is more expensive on average and when people need rides most," he said in an e-mail. "No matter the rate you shouldn't need a calculator to know the price of your ride."

Sidecar has begun using peak-hour pricing, too, but a spokeswoman for the company said it caps rates at three times the normal fare. She said that if prices surge, drivers get all of the added proceeds.

Andrew Noyes, an Uber spokesman, said the decision to lower fares was an effort to make the service more affordable and had nothing to do with criticism of the company's peak-hour pricing.

New Year's Eve brought a second challenge for Uber. One of its drivers was arrested on suspicion of vehicular manslaughter after hitting and killing a 6-year-old girl near the San Francisco Civic Center. Although the driver has been fired, critics have said the company and its drivers need more regulation.

Many of those critics are in the usually fractious taxi industry, where owners and drivers who have long been at odds have united in opposition to ride-sharing upstarts - that are largely unregulated. Taxis are heavily regulated, with the San Francisco Municipal Transportation Agency setting meter rates and limiting the number of cabs and their hours.

Companies like Uber "are essentially self-regulating," said Mark Gruberg, a taxi driver and spokesman for the United Taxicab Workers. "At least with taxis, you know that the person driving has undergone training, has had adequate background checks and that the vehicles have been government-inspected. None of this is true with the ride services."

While the MTA has jurisdiction over taxis, the California Public Utilities Commission has claimed control over the ride-sharing services, which it calls transportation network companies. Last year, after a series of hearings, the commission issued rules for the tech-driven ride services, requiring insurance, background checks and other safety provisions.

But taxi companies say that puts them at a competitive disadvantage because they have to bear vehicle purchase and maintenance costs, payroll expenses and a variety of fees and taxes. They also face many regulations that prohibit them from some of the practices used by the ride services. For instance, ride services keep customers' credit cards on file and can bill those who summon a ride but vanish before the car arrives.

San Francisco, like most cities, holds hearings and sets a maximum rate that cabs can charge. There is a pickup fee, or base rate, of $3.50 - which includes the first one-fifth of a mile - and a charge of $2.75 per mile or 55 cents per minute, depending on traffic.

The ride services are free to set their own rates and change them at will - as Uber did this week.

Cab troubles

Even before Uber's price-cut announcement, it was clear that the taxi industry was suffering. Taxi drivers have testified before the MTA and other city agencies that business is way down, that cab companies are having trouble recruiting drivers, and that some veterans are parking their cabs and using their own cars to work for Uber or Lyft, both of which have major ad campaigns soliciting drivers.

"Go to any cab company and you'll find that there are cabs sitting idle most of the time - even on Saturday nights, one of the two busiest times of the week," Gruberg said, "because the companies are having trouble filling shifts."

While some have claimed that the taxi industry is dying, Paul Rose, an MTA spokesman, disagreed, citing the increase in taxi medallions - operating permits controlled and sold by the agency - from 1,500 a year ago to 1,900 now, and 2,100 this year, if the MTA board approves.

"The fact of the matter," he said, "is taxi service has been increasing and improving over the last few years."